Geithner wants ‘decisive signal’ on eurozone debt
US Treasury Secretary Timothy Geithner has called on Europe’s leaders to send a “decisive signal” that they can handle the debt crisis, as pressure builds for action to prevent further eurozone damage.
With the US and eurozone debt and deficit crisis overhanging the IMF-World Bank annual meeting in Washington, top European officials had sought Friday to show they had a firm hand on matters and that the rescue of Greece, ground zero of the crisis, was moving ahead.
But in an interview with the BBC aired on Saturday, Geithner pulled no punches, telling eurozone leaders they were relying too much on the European Central Bank to contain the fallout from the crises in Greece, Ireland and Portugal.
“One of the reasons why it is so important for the governments to escalate is so that they do not leave the central bank carrying too much of the burden of responding to a crisis,” Geithner said.
“The most important thing that needs to happen now is to see a more decisive signal from the European leaders, that they have a strategy that can restore confidence in their will to assault this,” he said.
While he said the world should “have admiration” for the challenge facing Europe and “recognize the difficulty of it,” he cautioned that “markets are moving much more quickly than they are moving.”
“These things have the classic dynamic that the longer you wait, the harder it is to solve,” he said, however adding that he believed Europe’s leaders would do what is needed.
In Washington on Friday, senior European officials took pains to show they were in control of the situation.
French Finance Minister Francois Baroin said the July 21 plan of new money for Greece and to broaden the scope of the emergency European Financial Stability Facility had already put into place the steps needed to stabilize the eurozone.
“We are hand in hand with Germany to implement the July 21 agreement, not to move away from this strategy,” he said.
European Central Bank president Jean-Claude Trichet stressed that the situation as a whole was “very, very different from perception.”
“We are not in denial at all,” he added. “We have a global crisis of the creditworthiness of sovereigns and we are the epicenter of this crisis.”
German Finance Minister Wolfgang Schaeuble fended off criticism from Washington and elsewhere about EU indecisiveness in the face of possible public debt defaults and the fracturing of the eurozone.
“We in Europe are generally on the right path, especially we in Germany,” he said.
Late Thursday, the Group of 20 leading economies issued a surprise late-night statement aimed at calming markets after a global rout in equities on worries of looming recessions in the United States, Europe and Japan.
“We… are committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” the G20 finance chiefs said.
“We are taking strong actions to maintain financial stability, restore confidence and support growth.”
But pressure over the issue continues unabated, with IMF managing director Christine Lagarde and the fund’s European affairs chief repeating warnings of the need for a coordinated response in Europe that restores market confidence.
“We’re at the point now where decisive action needs to take place, and needs to take place very, very soon. It has to be concerted action, it has to be collective,” said Antonio Borges, director of the IMF’s European department.
Developing countries at the meetings in Washington also expressed worries that their economies would be hit badly if the advanced countries could not reverse the crisis.
Borges urged Athens to follow through on austerity conditions to the 110-billion-euro ($148 billion) rescue package from the IMF and the EU in order to get an eight-billion-euro disbursement so it can keep paying its bills.
“There is an element of market fear which, to a very large extent, we consider is excessive… We have to stop that before it becomes overwhelming,” he said.
Schaeuble rejected calls for Germany, together with France the leaders in addressing the eurozone debt crisis, to allow for more flexibility for the indebted countries to deficit-spend so that growth is not cut off.
“It’s more important to combat the real causes for the crisis… high deficits,” he said. “It’s very clear that you cannot combat the crisis by amplifying the causes.”
Markets meanwhile continued to harbor doubts about European action, with slight, rocky rebounds in stocks in Europe and the United States on Friday in the wake of Thursday’s sharp plunges.
Analysts said the G20 statement underwhelmed.
“The market is worried about the European situation and that the officials are moving too slow in terms of their action of getting things under control,” said Scott Marcouiller of Wells Fargo Advisors.
“It’s fear and uncertainty, the two things that the markets hate the most; it is continuing to dominate the marketplace.”